Buy-Side Diversification May Leave Front Office Floundering
Going about change in a piecemeal fashion can lead to unwanted results.
A few weeks ago I wrote a column about the changing nature of the foreign exchange (FX) market and how I had predicted some of these changes in an earlier feature. While I'm not going to re-tread that same ground, the theme of diversification is everywhere at the moment.
While for some it's not all sunshine and happiness, asset managers seem to be running with the idea and have set about hunting down new products in emerging markets to bolster their portfolios.
The reasons for doing so are not particularly new, with the exception of Brexit, and one of the main drivers of change is, unsurprisingly, regulation.
Waves of regulation that have either come into force or are due to hit the markets in the coming years are causing participants of all breeds to adapt to new environments, so much so that I've heard it referred to as "the new normal" god knows how many times.
The result of this is that far more money is being spent by asset managers on back-office capabilities than before, primarily to sort out long-standing data management and storage issues; consequently the front office is seeing far less investment than it used to.
Order management systems (OMS) and execution management systems (EMS), algorithmic trading and smart order routing platforms, decision-support tools, transaction-cost analysis (TCA) platforms; the historic investment in the front office has been first and foremost to the buy side, but the increasing importance of data management, visualization and analytics means those systems are being left behind.
The practice of getting an execution system in place or deploying a new algorithm is not an ongoing process: once the system is in place, the firm can let it be and go about other activities. The risk here is that while pursuing new product areas or markets, these systems may no longer be optimal, or worse, fit for the task.
This is not always the case though. Chicago-based Ativo Capital Management recently overhauled both is back- and front-office and gave Waters a detailed look at how it achieved this and the objectives behind the project.
The bottom line here is that diversification is a force for good in the capital markets, and change is a necessary part of growth. The way to go about that, however, is not piecemeal; like so much else in this space, holistic approaches usually yield the greatest rewards and by focusing too much on the here and now ─ back office and data ─ asset managers may find they no longer have adequate tools at the business end.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Emerging Technologies
Court case probes open-source licenses as movement stands at crossroads
The Software Freedom Conservancy’s lawsuit against TV-maker Vizio begins trial in California, raising questions about open-source licenses and the risks posed by adhering to them.
Waters Wavelength Podcast: Countdown to T+1
DTCC’s Val Wotton joins the podcast this week to discuss the impending move to T+1 in the US.
Hub to lay off 20% of staff, sources say
Hub’s CEO says this is simply a case of a startup trying to stay nimble and efficient; others say it points to deeper issues.
Fighting FAIRR: Inside the bill aiming to keep AI and algos honest
The Financial Artificial Intelligence Risk Reduction Act seeks to fix a market abuse loophole by declaring that AI algorithms do not have brains.
Waters Wrap: The rise of AI washing… and regulation washing?
The SEC recently levied fines against two investment advisors over “AI washing”. Anthony takes issue with the announcement.
This Week: Brown Brothers Harriman, BNY Mellon/Nvidia, Cboe, Eurex, and more
A summary of the latest financial technology news.
This Week: SS&C unveils T+1 preparedness scorecard; S&P/DTCC; SmartStream & more
A summary of the latest financial technology news.
The bank quant who wants to stop genAI hallucinating
Former Wells Fargo model risk chief Agus Sudjianto thinks he has found a way to validate large language models.
Most read
- Women in Technology & Data Awards 2024: All the winners and why they won
- Witad Awards 2024: Above and beyond award (vendor)—Susan Bennett, Tradeweb
- Fighting FAIRR: Inside the bill aiming to keep AI and algos honest